German-French Fight Breaks Out Over Frigates

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Though it was hard, Germany and France were publicly kissing and making up before the G-20 powwow in Paris last weekend. A contrived show of unity designed to boost the markets. And it worked. But already, Germany is sniping at France again. Over money, of course. This time because German taxpayers might have to subsidize a French company and French jobs… via Greece.

Greece wants to acquire two to four stealth frigates from France for $412 million each—a potential $1.65 billion, according to the Spiegel. That alone is interesting. Greece is bankrupt. It requires one bailout after another to make payroll. It’s desperately trying but failing to lay off 130,000 of its 1.3 million civil servants. And it’s cutting salaries and benefits of the rest. Meanwhile, those same civil servants paralyze the country with waves of protests and strikes. And that country wants to acquire expensive naval hardware? To fight who? Fellow NATO member Turkey?

The frigates are built by DCNS, a French company of which the French government owns 75%. And the French government offered Greece a deal it couldn’t refuse: the option to pay nothing for five years. At the end of that period, it can return the frigates to the French navy or pay for them. However, the deal appears to violate European Union rules on subsidies and public procurement.

It gets worse. ThyssenKrupp, a German steel conglomerate with numerous other interests, including shipbuilding, has raised a ruckus about the deal. In a letter to the German government, it claimed that the deal would have the effect of German taxpayers subsidizing a French company and French jobs.

Greece’s debt is reaching a point of no return. A big haircut or outright default is highly likely. Either will trigger payments from the EU’s bailout mechanism, the EFSF, and from the IMF. Both are co-funded by German taxpayers—the EFSF by 48% and the IMF by 6%. Once these bailouts are triggered, 54% of any incremental money the Greek government spends would theoretically be German taxpayer money.

Of course, the issue for ThyssenKrupp isn’t the plight of German taxpayers. To heck with them. The issue is that German taxpayers are subsidizing the wrong company. They should be subsidizing ThyssenKrupp and the bonuses and corporate jets of its executives—not those of their French counterparts at DCNS.

Already, the deal has taken on political dimensions. Members of Angela Merkel’s coalition government are putting pressure on her to have a come-to-Jesus meeting with her newly anointed best buddy, Nicolas Sarkozy. However, for him, seven months before the election, with unemployment ticking up, every job counts. And France’s industrial policy has a long history of stepping on other countries’ toes.

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